Home Guidance & tools Investing basics How mutual funds work

How mutual funds work

What is a fund?

Funds allow investors to pool their money together, which a fund manager will then invest on their behalf. The manager is responsible for choosing investments for the fund and tries to grow investors’ money by spreading it over a range of company shares, bonds etc.

Unit trusts, offshore funds and open-ended investment companies (OEICs) can all be referred to generically as funds.


Why invest in a fund?

More investment opportunities

Pool your money with other investors to take advantage of investment opportunities more easily than if you bought the individual assets yourself.

Managed by experts

Fund managers use their knowledge, experience and research to help your money grow and provide you with an income, if required.

Spreading the risk

Invested across a number of different companies, you’re not relying too heavily on the fortunes of any one company.

Risks of investing in funds

However, there are a few things to consider, as well.

  • The value of funds can go down as well as up, so you may get back less than you invest
  • Funds are medium to long-term investments; so you need need to be prepared to invest for at least five years
  • Investing isn’t for everyone, and depends a lot on your personal circumstances and attitudes to risk

Fund types

Unit trusts, offshore funds and OEICs
Property funds
Exchange traded funds (ETFs)
Investment trusts

Fund management

Passively managed funds
Actively managed funds
Fund of funds (MultiManager)

Evaluating funds

It takes time, experience, knowledge and skill to work out which fund could be the one right for you. Here’s what you need to consider along with your personal circumstances (like how much risk you’re willing to take).

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Differences between funds and other investments

  • Immediate diversification
  • Less risk than if you were to hold individual shares or bonds
  • No transaction costs with funds on our platform

How would you like to invest?


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These guidance tools are not a personal recommendation in respect of a particular investment. If you need additional help, please speak to a financial adviser. You should regularly reassess the suitability of your investments to ensure they continue to meet your attitude to risk and investment goals.

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Remember, the value of investments can go down as well as up so you may get back less than you invest. It’s important to understand that pension transfers are a complex area and may not be suitable for everyone. Before going ahead with a pension transfer, we strongly recommend that you undertake a full comparison of the charges, features, and services offered.